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Global Japan
NOV 6, 2013

Moving The World with Pallets

By Steven Neo Say Bin

While conducting research for a study, I chanced upon an interesting article by Tom Vanderbilt on the pallet which is described as “The Single Most Important Object in the Global Economy”. This article stirred my curiosity for “freakonomics” and I began to take a closer look at the humble pallet which has been a mover and shaker of the world for nearly a century.

A Brief History of Pallets

According to the Oxford Dictionary, a pallet is defined as “a platform for moving goods”. One of the earliest appearance of these “platforms” was in late 1800s where wooden skids (predecessor of wooden pallets) were used in American factories by low lift trucks for transporting goods from shore to ship. As early as 1926, the high lift fork truck was developed to dramatically increase warehouse and storage efficiencies by vertically stacking unit loads. With the introduction of the first gas-powered forklift trucks in 1937, it set the stage for the rise of the modern day pallet. The dramatic impact of pallets was documented in a 1931 railway trade magazine article: “Three days were required to unload a boxcar containing 13,000 cases of unpalletized canned goods. When the same amount of goods was loaded into the boxcar on pallets or skids, the identical task took only four hours.”

Tom Vanderbilt noted that tens of millions of pallets were used during World War II where “the use of the forklift trucks and pallets was the most significant and revolutionary storage development of the war”. The Allied Materials Handling Standing Committee (AMHSC) was developed by the Australian government to manage defense supplies. When the war ended in 1945, the U.S. military left behind 60,000 blue pallets in Australia and the Australian government decided to continue to endorse AMHSC to support the national economy. AMHSC eventually became known as the Commonwealth Handling Equipment Pool (CHEP) and it would subsequently be privatized in 1949 under the new government led by the Liberal Party of Australia. CHEP would move on to become a global leader in pallet, crate, and container pooling services where CHEP USA controls about 90% of the “pooled” pallet market in the United States.

Impact on the Global Economy

As a mover and shaker of the global economy, the pallet industry is highly influenced by various political, economic, social, and technological factors such as the adoption of regulatory requirements on packaging recycling, an aging world population, a trend towards “on-the-go” lifestyles among time-poor consumers, and new packaging material developments. Based on the latest market research by Freedonia Group, the 1.1 billion unit U.S. pallet market is forecast to grow by 3.5% annually through 2017 to 1.3 billion units and valued at US$16.9 billion. This strong demand is influenced by favorable economic conditions and rising manufacturers’ shipments where World Trade Organization (WTO) economists have estimated that the volume of world merchandise trade will grow by 2.5% in 2013 and 4.5% in 2014. Exports of developed countries and developing countries is expected to expand by 2.8% and 6.3% respectively, while imports of developed countries and developing countries will climb by 3.2% and 6.2% respectively. Market optimism has led companies to increase their pallets to handle higher output levels and to replace their aging units that were refurbished during 2007 to 2009 economic recession.

Currently, wood pallets and wood packaging account for around 6% of the total global packaging consumption. However, the production of wood pallets and skids is estimated to have shrunk by 2.2% annually from 2008 to 2013. The shrinking market for wood pallets can be attributed to the resurgence in U.S. housing construction which is raising lumber prices to US$350 to $360 per thousand board feet, up from US$299 in 2012. In addition, more than 40% of lumber production is exported to China, with demands expected to sustain for the next 5 to 10 years. The rising costs of wood pallets is fueling the demand for alternative pallet materials, namely plastic, wood composite, cardboard, and metal.

According to 2013 consumer survey by Modern Materials Handling, the key buying factors for pallets include price, strength, durability, cost-per-use, reusability and availability. These factors are contributing to the growth in demand for plastic pallets with 33% respondents expected to increase their usage for the next 12 months. Two events have aided the growth of plastic pallets, namely IKEA’s 2011 decision to phase out their wood pallets with custom plastic pallets (OptiLedge) and the introduction of ISPM-15 import/export regulations which stipulates that wood packaging materials need to be “debarked, heat treated or fumigated with methyl bromide, and stamped or branded, with a mark of compliance.” Survey respondents have cited compliance issues, cleanliness, safety, sustainability, durability, greater control over plastic pallets, and rising consumer demands as the main reasons for the growth in usage of plastic pallets. Besides the gradual shift in pallet material, the industry is facing several challenges such as the “Amazon” effect, standardization issues, and sustainability concerns.

Key Challenges in the Pallet Industry

The “Amazon” effect contributed to the explosion in B2C e-commerce which accounts for just over 5% total global sales valued at US$1.3 trillion. The global e-commerce market will climb by 18% from 2012 to 2017, with the U.S. market growing by 7% annually in the same period. Analysts are concerned that containers and pallets are slowly being replaced by home delivery boxes from Amazon and other e-commerce storefronts. However, the market is more involved in tackling the issues of standardization and sustainability.

Currently, the International Organization for Standardization (ISO) recognizes six different dimensions for pallets, including 1100 x 1100 (Asia), 1140 x 1140 mm (Australia), 1200 x 800 mm (Europe), and 1219 x 1016 mm (North America). It is difficult to create a single standard pallet dimension for international trade as a standard pallet needs to satisfy “passing doorways, fitting in standard containers, and bringing low labor costs.” As a result, pallet pooling systems to retrieve/recover and reuse pallets are created to mitigate the need for individual organizations to maintain its own pools of pallets for international trade. CHEP USA manages 90% of the “pooled” pallets in the United States, while the European Pallet Association (EPAL) is coordinating the Euro Pool System. In Asia, LogisALL manages the Asia Pallet Pool with Japan Pallet Rental Corporation (JPR) and Taiwan Pallet Rental Corporation. The key challenge is the coordination and management of various public and private organizations in the standardization process for regional pooling systems. As noted in the 8th ASEAN-Japan Experts Group Meeting on Logistics (February 23, 2012), the process for pallet standardization in Thailand involves physical standardization (such as packing, pallet, container, and fork lift), information standardization (such as RFID), and transportation laws and regulations standardization (such as carriage of goods acts and multimodal transportation operation).

Besides standardization and pallet pooling systems, organizations are concerned with sustainability issues in the industry which has created opportunities for new market entrants and technological developments in pallet material. In Japan, President Masahiro Tawara of Ishikawa Prefecture-based Box Industry Co. successfully transformed his company from a plant equipment maker into a mesh pallet distributor in 2008. The company was able to create a lightweight and collapsible mesh pallet (steel-framed baskets) that catered to market demands for cost efficient and durable pallets. In November 2012, Eltete TPM Group utilized its Paper- Roll-to-Paper-Pallet and automatic paper pallet assembly (APPA) technologies to build a factory in Nagoya to produce three million carton board pallets per year.

Regardless of the future of the pallet industry, I am thankful for the humble pallet and its contribution to the world. As mentioned by Bob Trebilcock (Editorial Director at Supply Chain Management Review and Executive Editor at Modern Materials Handling), “Without a pallet, most of what you and I eat or wear or sit on or whatnot would not have gotten to us as easily or inexpensively as it got to us.”